Note 2: Revenue Recognition

Substantially all of the Company’s engagements are performed under time and material or fixed-price arrangements. For time and materials contracts, the Company utilizes the practical expedient under the ASU which states, if an entity has a right to consideration from a customer in an amount that corresponds directly with the value of the entity’s performance completed to date (for example, a service contract in which an entity bills a fixed amount for each hour of service provided), the entity may recognize revenue in the amount to which the entity has a right to invoice. During the second quarter of fiscal 2018, the Company recognized revenue of $79,965,000 associated with time and materials contracts utilizing the practical expedient under the ASU. These revenues represent 84% of the Company’s consolidated revenues and include revenues of $62,347,000 for the Company’s Engineering and Other Scientific segment and $17,618,000 for the Company’s Environmental and Health segment. During the first six months of fiscal 2018, the Company recognized revenue of $163,136,000 associated with time and materials contracts utilizing the practical expedient under the ASU. These revenues represent 85% of the Company’s consolidated revenues and include revenues of $126,948,000 for the Company’s Engineering and Other Scientific segment and $36,188,000 for the Company’s Environmental and Health segment. The Company’s time and material contracts are terminable and subject to postponement or delay at any time by our clients, and as such, the performance obligations for all of the Company’s time and materials contracts have an original expected duration of one year or less.

For fixed price contracts, the Company recognizes revenue over time under the ASU because of the continuous transfer of control to the customer. The customer typically controls the work in process as evidenced either by contractual termination clauses or by the Company’s rights to payment for work performed to date to deliver services that do not have an alternative use to the Company. Revenue for fixed price contracts is recognized based on the relationship of incurred labor hours at standard rates to the Company’s estimate of the total labor hours at standard rates it expects to incur over the term of the contract. The Company believes this methodology achieves a reliable measure of the revenue from the consulting services it provides to its customers under fixed-price contracts given the nature of the consulting services the Company provides and the following additional considerations:

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the Company considers labor hours at standard rates and expenses to be incurred when pricing its contracts;

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the Company generally does not incur set up costs on its contracts;

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the Company does not believe that there are reliable milestones to measure progress towards completion;

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if the contract is terminated early, the customer is required to pay the Company for time at standard rates plus materials incurred to date;

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the Company’s contracts do not include award fees or bonuses;

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the Company does not include revenue for unpriced change orders until the customer agrees with the changes;

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historically the Company has not had significant accounts receivable write-offs or cost overruns; and

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its contracts are typically progress billed on a monthly basis.

During the second quarter of fiscal 2018, the Company recognized revenue of $15,656,000 associated with fixed-price contracts. These revenues represent 16% of the Company’s consolidated revenues and include revenues of $14,733,000 for the Company’s Engineering and Other Scientific segment and $923,000 for the Company’s Environmental and Health segment. During the first six months of fiscal 2018, the Company recognized revenue of $28,942,000 associated with fixed-price contracts. These revenues represent 15% of the Company’s consolidated revenues and include revenues of $27,179,000 for the Company’s Engineering and Other Scientific segment and $1,763,000 for the Company’s Environmental and Health segment. The Company’s fixed price contracts are terminable and subject to postponement or delay at any time by our clients, and as such, the performance obligations for all of the Company’s fixed price contracts have an original expected duration of one year or less.

Deferred revenues represent amounts billed to clients in advance of services provided. During the second quarter of fiscal 2018, $2,671,000 of revenues were recognized that were included in the deferred revenue balance at March 30, 2018. During the first six months of fiscal 2018, $4,604,000 of revenues were recognized that were included in the deferred revenue balance at December 30, 2017.

Reimbursements, including those related to travel and other out-of-pocket expenses, and other similar third party costs such as the cost of materials and certain subcontracts, are included in revenues, and an equivalent amount of reimbursable expenses are included in operating expenses. Any mark-up on reimbursable expenses is included in revenues. The Company reports revenues net of subcontractor fees for certain subcontracts where the Company has determined that it is acting as an agent because its performance obligation is to arrange for the provision of goods or services by another party. The total amount of subcontractor fees not included in revenues because the Company was acting as an agent were $5.8 million during the second quarter of fiscal 2018. The total amount of subcontractor fees not included in revenues because the Company was acting as an agent were $11.4 million during the first six months of fiscal 2018.